Over at TIME Blogs, ‘Curious Capitalist’ writer Michael Schuman continues his series on Malaysia’s development, based on his recent trip and interviews with high-ranking officials including Prime Minister Najib Razak. Of particular concern is Malaysia’s position in the ‘middle income trap’; where emerging countries are unable to make the final leap to ‘ fully developed’ economic status. He lays the blame firmly on bureaucratic intervention in economic activity, especially Malaysia’s affirmative action program providing many opportunities to native Malays over other Malaysians (in an article mentioned here last week).

In his latest post he makes a comparison with South Korea, also a former developing country whose economic ways were shaken up by the 1997 Asian Crisis, leading to a dismantling of the system where banks gave preferential treatment to favored conglomerates over smaller operations with more feasible plans. While not government policy, it had the same effect as a racial preference program in inhibiting development of a true meritocracy, he says, and its disappearance was vital in making South Korea more innovative with wider sources of growth. Markets, not bureaucracies or intervention, raises countries out of the trap.

source & article: Escaping the Middle Income Trap, Part 1 & Part 2